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Lawmakers approve refinery subsidy plan, excluding Agrium

Dermot Cole
The closure of the Flint Hills refinery in North Pole, slated for June, prompted the subsidies to Petro Star and Tesoro refineries. Courtesy Flint Hills Resources Alaska

JUNEAU -- The Alaska Senate approved a plan early today to give subsidies of up to $20 million a year to Petro Star and $10 million a year to Tesoro for five years.

The 40 percent tax credit would be paid in the form of refunded taxes or cash payments to the companies in exchange for “infrastructure expenditures” at the Petro Star refineries in North Pole and Valdez and the Tesoro refinery in Kenai. The Senate removed a House amendment that had added the shuttered Agrium fertilizer plant to the list of institutions qualifying for the subsidy. The House adjourned at 4 a.m., planning to return to work at 2 p.m. Monday,

The shutdown of the Flint Hills refinery led to the financial aid plan, which was requested by Petro Star to deal with issues such as high-priced North Slope oil and tens of millions in payments to the so-called "Quality Bank" to compensate for the lower-quality oil the company injects back into the pipeline.

The refineries along the trans-Alaska pipeline return about 70 percent of the oil they extract, but what they return is of much less value. Petro Star claims the formula is unfair, a position that the state once rejected, but adopted after the Flint Hills shutdown news. Tesoro opposes any change in the formula.

Qualifying expenditures for the subsidy are for the "in-state purchase, installation, or modification of tangible personal property for the in-state manufacture or in-state transport of refined petroleum products, or petroleum-based feedstock.”

The bill, which had been approved by the House last week, won Senate approval at about 2:30 a.m. on a 14-6 vote.

Democrats Hollis French, Johnny Ellis, Berta Gardner and Bill Wielechowski joined Republicans Mike Dunleavy and Anna Fairclough in opposing the measure.

Sen. Peter Micciche defended the inclusion of Tesoro in the financial aid plan, though no one argued that Tesoro needed a state subsidy.

“In a free market economy, the reality of it is, you shouldn’t pick winners and losers. If you’re going to offer incentive or a credit, it should be given to each individual facility in that industrial class.”

On Sunday, Natural Resources Commissioner Joe Balash said the state payments to the companies would not be subsidies. He said it was a “deferral of the payments we would lose if these facilities were to shut down and we were to lose that additional revenue.”

As to why Tesoro was included, Balash had repeated his earlier statements about the state not picking winners and losers. He said there is fierce competition in Alaska. “We think that competition is good for Alaska, good for Alaskans, good for the economy. We don’t want to take an action that would tip the scales in favor of one company over another,” he said. “We worked very hard to keep this set of incentives available to all of the refineries,” he said.

French said it appeared that supporters had an “unresistible urge toward tax credits.” The tax credits will be paid with state savings, he said, but if they had to be paid from the proceeds of an income tax, a sales tax or with money from the Permanent Fund, Alaskans would say "baloney."

French said the companies were unwilling to bring forward their financial data and made a “half-hearted case” for the subsidy plan. He said he understands the need to guarantee jet fuel supplies for the military, but not with a program of this sort.

Petro Star, which is owned by the Arctic Slope Regional Corp., the largest Alaska-based firm, received a competitively-bid contract of up to $8 million in February for jet fuel sales to the military through 2018. It qualifies as a “small business,” according to the Department of Defense.